Impulse MACD vs. Traditional MACD: Which One Should You Use?
MACD is probably one of the most popular technical indicators out there. There are dozens of trading strategies that utilize this tool, and to be honest, some of them are quite successful. But what if I told you that there is an indicator on TradingView that is 10 times better than the old MACD? It works very well for trading Forex, stocks, and cryptocurrencies and it perfectly filters out a range market. This indicator is called the Impulse MACD. In this article, you will learn how to use it in your trading to find next-level trade entries.
Understanding Traditional MACD
Before we add the Impulse MACD to the chart, let’s first understand how a regular old-school MACD functions. MACD stands for Moving Average Convergence Divergence. This indicator is a momentum oscillator. It measures both the speed as well as the rise or fall of a stock’s price. Essentially, it calculates the difference between an instrument’s 26 and 12-day exponential moving averages. In calculating their values, both moving averages use the closing prices of whatever period is measured on the MACD chart. A 9-period EMA of the MACD itself is also plotted. This line is called the signal line, which acts as a trigger for buy and sell decisions. The MACD is considered the faster line because the points plotted move more than the signal line, which is regarded as the slower line. The MACD histogram is a visual representation of the difference between the MACD and its 9-day EMA. The histogram is positive when the MACD is above its 9-day EMA and negative when the MACD is below its 9-day EMA. The point on the histogram where momentum is zero is the zero line. If prices change rapidly, the histogram bars grow longer. This signals a high level of buying or selling interest among market participants. When the price shows a slow progression, the MACD histogram becomes shorter. In trending market conditions, MACD signals can be quite accurate. However, market trends only occur 20 to 30 percent of the time. When there is a range in the market, which happens 70 to 80 percent of the time, this indicator produces a lot of low-quality signals. That’s why you might want to start looking for different options like the Impulse MACD.
Using Impulse MACD in Technical Analysis
In order to add the Impulse MACD to the chart, navigate to the indicators menu and search for “Impulse MACD” created by LazyBear. Once you’ve installed it on a chart, open its settings and make some changes to the style. Impulse MACD is a modified MACD formed by filtering out the values in a moving average range, thereby reducing the whip so typical in a sideways market. How does that translate into practice? Well, when the price starts moving sideways, the histogram of the indicator and the line become flat. This way, you have full confidence that you should not be opening any trades during this time.
There are many ideas on how you can use Impulse MACD in technical analysis. One strategy involves combining it with volume-based support and resistance zones created by Tommy f1001. This indicator shows multi-time frame key levels of support and resistance based on volume. By using these zones in combination with Impulse MACD, you can produce accurate and early trade entries. For example, the entry conditions for a long trade could involve the market returning to a support zone for a retest, the Impulse MACD turning green, and the price closing above the support zone.
Whether you are a trend trader or a more conservative trader, there are various ways to use Impulse MACD in your trading strategy. By experimenting with different entry and exit conditions, you can create a strategy that works best for your trading style. Feel free to leave a comment with your ideas and suggestions about the Impulse MACD. Thanks for reading!